Heralding good times

BANKING ANNUAL 2003

The past year has been a turning point for Indian banking. Bank stocks have been re-rated by the market, reflecting the vast improvement in the sector's fundamentals. There are several reasons for the dramatic changes. 

Internally, banks have used the windfall profits arising out of profits on the sale of government securities to clean up their balance sheets, and many banks are now seeing negligible levels of net NPAs in the near future. Externally, a number of policies have made a crucial difference "� these include the new foreclosure law, the CDR mechanism, the debt recovery tribunals and the encouragment given to one-time settlements. All this has helped banks get rid of their deadwood. 

At the same time, with interest rates at record lows, with corporates becoming more efficient in working capital management and with the lack of investment demand, banks have had to rework their lending strategies. Thankfully, they have found a new source of growth in the retail sector. With retail lending at levels far below those prevailing in other Asian markets, the scope for growth in this segment continues to be immense. 

And finally, the buoyancy in banking stock prices has been used by many banks to boost their capital by tapping the markets and they have been extremely successful in that endeavour. This year's BS Banking Annual chronicles all these fundamental changes in the banking sector.

The main beneficiaries of this change have been the public sector banks, many of which have used the opportunity to script turnarounds. It's not surprising, therefore, that seven of the top 10 banks this year are from the public sector. 

PSU banks have indeed come a long way from the days they had to be supported by the Centre through injections of capital. Fittingly, UCO Bank's VP Shetty, the year's foremost turnaround artist, is our Banker of the Year. Our Bank of the Year award goes to Andhra Bank, a bank that has seen enormous improvement in its working in the recent past.

In many ways, the driving force behind the retail revolution in Indian banking has been technology. This issue takes an in-depth look at the technology involved in today's banking. And we also have our regular features "� the financial overview of the entire banking industry and the ranking of banks.

Of course, not everything is hunky-dory. We also feature co-operative banks, which constitute the soft underbelly of the Indian banking system. 

In spite of the challenges yet to be overcome, the key message of this year's Banking Annual is that the face of the financial services industry has changed beyond recognition in the last few years. Those banks that can grasp the new opportunities will succeed beyond their wildest dreams.